AFRICA HORIZONS A UNIQUE GUIDE TO REAL ESTATE INVESTMENT OPPORTUNITIES 2021/2022 - Knight Frank
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
AFRICA
HORIZONS
A UNIQUE GUIDE TO REAL ESTATE INVESTMENT OPPORTUNITIES
2021/2022
Market resilience Innovation Health and wellness
2 3
Contents 04.
Big interview Welcome
07. I am delighted to welcome you to the second edition
of our Africa Horizons report
Market resilience
Against a backdrop of uncertainty, Africa’s
real estate sector is showing its strength
08. Africa calling
10. Where is the money?
11. Direction of travel
Commissioned by 14. Shopping list
James Lewis
16. Are you being served?
Managing Director, 18. Our view
Knight Frank Middle East and Africa
Editorial team
Tilda Mwai
19.
T
Andrew Shirley
Innovation his past year has been in very many ways an Further, throughout the report we endeavour to predict
Contributors
How new ways of thinking and a step change extraordinary one for the global economy and what will come next in sectors including commercial offices,
Stephen Beard
in connectivity are fuelling growth real estate. Behavioural shifts as a result of the healthcare and agriculture, so our clients are well placed
Betty Cox
20. The heat is on Covid-19 pandemic forced us to rethink how to capitalise on these opportunities.
Anthony Duggan
Winnie Gachagua 22. The green machine we interact and occupy space in markets across the world. This year marks the 125th anniversary of the formation
Nick Gaertner 24. Food for thought However, it has also been a testament to the breadth of of Knight Frank. As a business, we have continued to grow
David Goatman 28. Get connected opportunities and market resilience that Africa continues radically, including our commitment to Africa. From our
Anthony Havelock 30. Creative thinking to present. For this reason, we start off the report by first office in Lagos, opened in 1964, to a growing team of
Sharon Kamayangi interviewing South African venture capitalist Vusi over 400 experienced professionals based in nine African
Gireesh Kumar Thembekwayo, who shares his thought-provoking views countries and operating regularly in 43 of the continent’s
Ian Lawrence
31.
on how to capitalise on the African opportunity. 54 sovereign nations, we deliver innovative advice that
Charles Macharia
The world over, Covid-19 has supercharged some of creates tangible value for our clients, while all the time
Cameron McDonald
the longer-term trends that were already emerging pre- working responsibly, in partnership, to enhance people’s
Health & wellness
Charles Onyenze
pandemic, such as sustainability, health, wellness and lives and environments.
Victoria Ormond
innovation. In this edition, using data and insights from I hope you enjoy Africa Horizons and find it useful and
Arturo Pavani In a post-pandemic world, quality of life is top
our teams across the continent, we illustrate how these thought provoking. If my team can be of any help, do get
of the agenda for investors and developers
PR and Marketing themes are taking shape in Africa. in touch. You can find their contact details at the end of
Sarah Guppy 32. Home sweet home
For example, our article on page 20 details the future this report.
Melissa Hughes 36. Working it out
of African cities in the light of changing climatic conditions,
Cynthia Kimola 38. The wellness opportunity
while on page 28 we outline the factors shaping the growing
Creative need for data centres. And, recognising that real estate
Quiddity Media Limited
Data partner
40. is about living as well as investing, on page 32 we explore
changing attitudes towards home ownership.
James Lewis
Managing Director, Knight Frank Middle East and Africa
fDi Intelligence
Conclusion
40. Our world in data
41. Knight Frank in Africa
“
4 5
I think we’ll increasingly
see more African countries
Nothing move away from primary
industries as a major
source of GDP towards How quickly do you think the continent can bounce back from What in your view are the biggest potential barriers to unlocking
ventured,
the Covid-19 pandemic? the potential that we’ve just discussed?
secondary and tertiary
industries and beneficiating My expectation is that it’s going to be a very long L-shaped recovery and I have the incredible privilege of travelling the continent. Most young
some of those goods then we’ll begin to see some shoots again. A big part of the challenge is that people in this continent don’t want charity. They just want the opportunity.
and services. many of the economies in the continent were already in trouble pre-Covid. But in many of those economies, the opportunities are locked out,
nothing gained
In the southern region you’ve got Swaziland, Lesotho, Botswana and then they are concentrated in a power base of the few. The economies tend
Namibia, all of them tethered to the economy of South Africa. So, it’s going to be oligopolistic, that is to say dominated by a few large players with
to take a while, in my estimation. And especially for households, the middle very little room for new space and new innovation. And the capital
class and the consumer class. markets are not particularly deep, so even if young people want to do
something enterprising, they don’t have the means to do so. Those
Because of the pandemic, a lot of businesses have had to adapt, are the issues that we’ve got to face. I think we have to create a new
becoming much more flexible and entrepreneurial and creating narrative by delivering new realities. It’s just that simple in my mind.
South African venture capitalist Vusi new ways to service their clients. Is that something that’s
Thembekwayo highlights the opportunities on happening in Africa? Africa accounts for a very small share of global FDI despite
offer to investors across Africa – and tackles the the huge potential of its natural and human capital. If you were
tough questions the continent needs to answer In many organisations, big or small, it seems to me pre-Covid that the talking to an overseas investors considering Africa, would you
biggest barrier to shifting and changing towards more aggressive use of try to persuade them to make the jump?
before it can fulfil its true potential
technology was people felt that technology wasn’t ready. If there’s one
Interview: Andrew Shirley
thing Covid has proven, it’s that the technology was always capable and It’s interesting you ask me that, because that’s literally the project I’m
was always ready. It was the humanness and the desire to keep things as working on now. We’re busy raising a pan-African mezzanine fund that
they were, rather than to move to a new world of work, that was holding will look at highly industrialised technology. So, here’s the pitch. At a
things back. macro level, you’ve got a population that’s getting younger. You’ve got
Particularly in our part of the world, we’ve seen an incredible increase GDPs that are growing. You’ve got increases in levels of literacy and growth
in the usage of online technologies, the use of online productivity tools in the debt capital markets. All of these things fuel and are the inputs for
across organisations and across businesses. Both services businesses and a strong middle class.
industrial businesses have really had to think about how they automate The challenge, and this is what I say to global partners and investors,
processes, how do they then streamline those processes once they’ve been is that you have to see Africa for what it is, not for what it pretends to be.
automated, how do they collapse some of those processes so they can get Africa in my mind is the US in the 1920s before the idea of a chicken in every
from point A to point Z in a much shorter space of time and become more pot and a car in every garage.
price competitive? We have a long way to go, but I’m very excited. I always say this to global
And most importantly it’s driven these massive localisation programmes investors. There is huge opportunity in the short term for massive upside
where we’re seeing some of the large S&P 500 companies talking about in Africa. Massive upside. But the real opportunity is in the long term. It’s
localising key and critical parts of their supply chains [in Africa]. And that’s buy to hold.
going to accelerate the rate at which these businesses are able to adopt
new technologies. So, I’ve been very excited to see the rate of technology From your own experience creating numerous businesses and
adoption and the speed with which people have taken to this new reality, as working with other entrepreneurs across Africa, what sectors
everybody now calls it. and locations excite you the most?
Do you think Africa could become more competitive and fulfil That’s an interesting question. Africa is not a winners-and-losers economy,
some of the roles for the rest of the world that China has been which the rest of the world tends to be. And the reason for that is because
fulfilling because of these changes? many of those economies have matured, so the only way one part of the
economy can grow is if it steals market share from another.
I think we’ll increasingly see more African countries move away from That’s not the case with Africa. The base is so low that all the sectors
primary industries as a major source of GDP towards secondary and are rising at the same time. So, textiles is growing, property is growing.
tertiary industries and beneficiating some of those goods and services. If you want to move into alternative asset classes, cryptos are growing,
For instance, you’re mining a particular mineral, you’re mining cobalt, forex is growing, financial services are growing. Then you look at IT, and
but you’re not in the production of lithium ion batteries, right. Or, that’s growing too.
you’re not in the production of smartphones, but you’re mining the In education, look at GetSmarter and its listing on the Nasdaq, and
raw minerals that go into them. Rwanda has set up a facility there for the valuation of that. You want to look at fintech, look at Stripe buying
the mass production of mobile phones. And then Durban in a special Paystack, and you get a sense of the opportunities.
economic zone, they’ve set up Mara Phones to make smartphones in So, you know, this is a part of my excitement about the continent. In
Africa, for Africans. Africa, for instance, you’ve got massive growth in residential housing but
6 7
“
There’s a growth
in retail chains that
are looking for new Do you think the pan-African free trade agreement that’s recently Market
been ratified is going to create more opportunities for intra-
resilience
markets, so they’re African trade, so Africa doesn’t have to rely quite so much
moving from markets on the rest of the world?
like South Africa, like
Nigeria, into the rest Absolutely. I do. I think the Africa free trade agreement is a fantastic start. Against a backdrop of uncertainty, Africa’s
of the continent. It really is. I only have one worry. What you really need is for individual real estate sector is showing its strength
regions and economies to collaborate where they have comparative
advantage, not cannibalise each other. So, there’s no point developing a
huge industrial textiles centre in the east and then the west of Africa tries
to do the same thing.
If you think about Africa as a single market area in my mind there’s a real
opportunity to say, “So how do we collaborate in the value chain that would
mean the rise of Africa?” If you get into that, then what happens is you build
an entire value chain of opportunities that can really elevate all the other
you’ve also got huge growth in the commercial sector. It’s not that people parts of the continent.
are migrating from one to the other. That’s not the case at all. It’s that
people are interested in getting across all of these because it’s the rise of You’ve got a real vision for the continent. Can you predict what
a continent that’s been in the dark for 300 years. the future holds for Africa in this next decade?
Are there any specific real estate sectors where you feel there That’s a very good question. I think there is a low road and a high road. The
are opportunities? low road is a continuation of the vested interests in North America, Europe
and Asia that uses Africa, by proxy, as a place from which to extract talent
If you’re making an investment case social services, or what is called the and raw materials, and by so doing not allowing the continent real
cluster of social welfare, will continue to be a huge economic driver in opportunities to grow into her own stride.
much of the continent. This is because many governments don’t have It will perpetuate the strong man syndrome. It will create social instability.
the capacity to deliver those social services. As a consequence, they It will continue to create mass migration and all of those, as Europe has seen
then become privatised and, because they’re privatised, there’s huge recently, sooner or later become a problem for the rest of the world. So, that’s
opportunity for upside. the low road. That’s one scenario.
Partners of ours, for instance, operate a healthcare fund. They’re listed The other scenario, the high road, is that Africans themselves create an
in South Africa and in Rwanda and they’re seeing huge opportunities agenda for Africa. Last year, I travelled to this incredible place, it’s a slave
for healthcare across the continent. If you’re in financial services, again, island off the coast of Senegal. I get goosebumps just thinking about it. Going
AFRICA CALLING
hugely profitable. through that experience and realising the voyage that slaves were put through Opportunity awaits for overseas investors
If you’re in education, you will have to be a bad operator with a bad and the period of time over which slavery happened, and then the realisation
business model and be a bad business person to not make money. The that slavery happened because in part it was facilitated by Africans, that there WHERE IS THE MONEY?
average African mother and father believes that their children’s quality were Africans living here who were trading their brothers and sisters, selling Who’s investing in African real estate
of life and their future prospects are 100% determined by the calibre them off to the rest of the world.
of the education they receive. So for me, those three are big. I realised then that is the danger of an Africa that doesn’t have its own DIRECTION OF TRAVEL
And then of course there’s the constant underdog, and she’s an agenda. It is open to being exploited. This is why, when you asked the question Where next for the hospitality sector?
underdog because it’s not a sexy industry, but it’s a hugely profitable about the free trade agreement, I said it’s a good start. The real question is
industry if you can get the play right, and that’s the agricultural industry. whether we can see each other as a single economy. Because if we can, then it SHOPPING LIST
Post-pandemic, retail bounces back
So, again, other partners of ours operate food funds. They’ve just means we have to have the ability as Africans to have deeply uncomfortable
bought an asset in Kenya, which is a dairy asset. The volume conversations. I am excited. Do I think it’s possible? Dare I say, I don’t think it
ARE YOU BEING SERVED?
growth is unbelievable. will happen in yours and my lifetime. But I do think it’s worthwhile for Africans
Why the future is service-led
There’s growth in retail chains that are looking for new markets, themselves to really think how they build a home that they can be proud of,
so they’re moving from markets like South Africa, like Nigeria, into that can stand head and shoulders with its peers, the world over. OUR VIEW
the rest of the continent. But they need to protect their supply chains, Knight Frank’s experts on the service trend
so they’re signing huge contracts with single players to get goods into
Biography
the rest of the continent. When you have a dairy asset that can produce
and distribute goods from one country to 17 others, that’s a hugely Vusi Thembekwayo is CEO of impact investment firm MyGrowthFund
lucrative play. VCC. He was a “dragon” on the South African version of the TV show
So, this is why I said to you, it really is a rising tides elevating all ships, Dragons’ Den.
and to make all of this happen, a new asset class that will be doing For more from Vusi head to knightfrank.com/wealthreport
exceptionally well is logistics, freight and transportation.
8 9
Africa calling
m
a
GLOBAL INTERESTS
INTO AFRICA
r
k
2019 FDI FLOWS
e
t
r
e The case for investment across the continent is compelling, but too many
s
investors risk missing out on the multitude of opportunities on offer
i
l
Words: Andrew Shirley
i
D
e
n
c
espite accounting for around 17% they also tie in well with UN Sustainable
e of the world’s population, Africa Development Goal (SDG) 7 – affordable and
attracted less than 3% of global clean energy, which Standard Chartered
foreign direct investment (FDI) estimates represents a US$4.2 trillion
in 2019, according to UNCTAD. opportunity for private investors. “Many
A recent survey published by Standard investors will only put monies to work in Africa
Chartered bank, representing US$50 trillion of if done so in accordance with the Sustainability
investment, found that only 3% of the assets Framework of the IFC (part of the World Bank),
under management were located in Africa. which is aligned with the UN SDGs,” he says.
However, of those respondents already
invested in the continent, 93% said they wanted Fundamentals for growth
to increase their exposure, while more than
50% said their investments had performed as Areas such as banking, telecommunications
well or better than those in the developed world. and infrastructure also have significant scope KEY
“The perception of heightened to grow, points out Félicité. “The long-term
environmental and social risk in emerging fundamentals for economic growth are strong. CA PITA L
TOTAL F D I IN VE STM E N T
markets is just that: a perception. The reality on Despite the pandemic pushing the continent PROJ E CTS (US$ M )
the ground tells a different story,” writes Amit back into a recession, its growing, youthful
Puri, the bank’s Global Head of Environmental population still contrasts sharply with the US FRANCE
and Social Risk Management. ageing populations of most other regions.
1 15 107
John Félicité, Director for Africa at Ocorian, “The continent currently boasts the largest Top 10 sectors by
which offers fund administration, corporate, share of adults with mobile money accounts 3,458.80 57 51.1 0 capital investment
fiduciary and capital markets services, agrees. in the world, and with almost 60% of its
1. Real estate
“Among the barriers to progress and attracting population under the age of 25, tech adoption UK UAE
fresh FDI is a misconceived perception of risk. and the fintech space will continue to expand.” 2. Renewable energy
83 71
“There are of course genuine concerns A common criticism levelled at Africa is
3. Coal, oil & gas
to be had, but due diligence is key. Foreign that too much of its GDP is based on extractive 3152 . 20 56 39.30
investors entering Africa for the first time can commodity markets, with not enough of the 4. Chemicals
mitigate risks and capitalise on areas of high secondary processing and manufacturing
GERMANY CHINA 5. Transportation & warehousing
growth potential by partnering with the right capacity that powered Asia’s economic
professionals on the ground.” growth. Nevertheless, a study from Groningen 68 62 6. Communications
Adrian Mayer, head of law firm Charles University, cited by The Economist magazine,
4803.30 94 1 9.30 7. Hotels & tourism
Russell Speechlys’ Africa group, believes there shows encouraging signs of growth.
is plenty of potential for those prepared to do In real terms output is up by 91% since 8. Metals
their research. “I am seeing an encouraging 2000, with the share of workers involved in J A PA N
9. Paper, printing & packaging
number of clients looking at investment the manufacturing sector in sub-Saharan 43
opportunities and deploying funds across Africa rising from 7.2% in 2010 to 8.4%. 10. Food & beverages
289 3.70
the continent,” he says. Sectors of particular And, as venture capitalist Vusi Thembekwayo
Others
interest include renewable energy, secondary points out on page 4, the implementation of
agriculture (see page 24) and real estate. the African Continental Free Trade Area
Source: fDi Intelligence
Although renewables are a good business should provide a further boost to growth.
proposition in their own right, Mayer notes Africa awaits.
10 11
m
Where is Direction of travel
the money?
a
r
k
e
t
r
The Covid-19 pandemic hit Africa’s tourism industry hard – so where does it go next?
e Africa Horizons quizzed three industry stakeholders on what the future might hold.
s
New research from Knight Frank’s data science team provides an insight into We share a flavour of their thoughts here
i
who is investing in the continent’s real estate markets Interviews: Andrew Shirley
l
i Words: Tilda Mwai & James Culley
e
n
R
c
e eal estate data is difficult to obtain into three groups of countries: those where Countries that have high yields received OUR managed conservation areas which have, in many cases,
across different markets in Africa, the model predicted the amount of real estate higher levels of real estate FDI than might be PANELISTS used tourism as a monetisation method to aid in their
and real estate transaction data FDI almost correctly; those where the model predicted based on the drivers identified in the conservation efforts.
Paul Milton
is even harder to come by. under-predicted the amount of real estate FDI; model, as the returns that could be expected Founder, Job losses have been significant and the positive
In order to better understand the impact and those where the model over-predicted the from real estate in those countries are seen The Milton Group impact of the downstream multiplier effect that tourism
of the Covid-19 pandemic on countries’ ability amount of real estate FDI. as justifying the additional risk. revenues provide has been all but lost over the past
Ramsay Rankoussi
to attract real estate investment, the We then looked at whether there were Countries that do not have such strong and VP, Development, year. Recovery to pre-pandemic levels will be slow and
Knight Frank data science team created significant differences between the prime stable real estate markets, but where yields Africa & Turkey, reliant on the international airline industry’s recovery
an econometric model to analyse the key yields of the countries in these three groups. are also not that high, receive less real estate
Radisson Hotel ow badly has the pandemic affected the
H and vaccination programmes.
Group wildlife-based tourism sector in Africa?
determinants of real estate foreign direct The results strongly suggest that the FDI than expected as investors would rather
Ali Manzoor
investment (FDI) into African countries between relationship is a negative one. Broadly put, invest in a stable market or one that offers PM
The impact has been devastating. According to World
Post-Covid, how quickly do you think the sector
Head of Hospitality,
2015 and 2019, and to further determine the as gross yields increase, so does the amount the potential for higher returns. Knight Frank ME Trade Organization figures, conservation tourism will recover to previous levels?
relationship between real estate FDI flows and of real estate FDI. accounts for 80% of international travel to Africa,
gross yields across different markets in Africa.
For example: generating 24 million jobs and annual revenues PM It’s difficult to predict whether the traditional source
When we compare the three groups, we get exceeding US$40 billion. Domestic tourism has helped markets for Africa, the US and Europe, will in fact
Determinants of real estate FDI these results: Ethiopia recorded prime yields of 6% in 2019. augment losses, but falls woefully short of providing ever provide the same pre-pandemic demand. Most
Group Average prime yield The actual real estate FDI into the country replacement revenues to pre-pandemic levels. industry commentators agree that growth for African
So, what are the factors influencing the amount was US$2,000m while the model predicted Evidence suggests the annual cost of just “keeping conservation-based tourism is likely to emerge from
Model predicted accurately 8.2%
of real estate FDI an African country receives? US$2,900m. the lights on” for Africa’s National Park system by Asia. Local demand from within Africa is anticipated
Using data from fDi Intelligence, we focused on Model over-predicted 9.2% providing basic security management could be in the to continue in the two to four-star market sector, but
identifying the main drivers behind variations Model under-predicted 9.8% Senegal recorded prime yields of 10% and an region of US$1 billion. This doesn’t include privately with less demand for top-end products.
in real estate FDI flows. These were categorised actual real estate FDI of US$2,000m compared
in terms of economic and demographic factors, In countries where there is a strong, stable with predicted real estate FDI of almost nothing.
including assessments of economic freedom real estate investment market, and hence
and progress, using data sourced from Oxford low yields, the amount of real estate FDI is Nigeria recorded prime yields of 9.5% and an
Economics and The Heritage Foundation. approximately what you would expect based on actual real estate FDI of US$650m, compared
Based on this analysis, we ranked the following key drivers such as total FDI and GDP per capita. with a prediction of US$5,800m.
significant determinants of the inflow of real
estate investment to an African country: REAL ESTATE FDI VS YIELDS ECONOMETRIC MODEL
Rank 12
1. Foreign direct investment, US$ 10
FDI real estate (log)
2. Judicial effectiveness 8
3. Financial freedom 6
4. GDP per capita, real, US$, constant prices 4
5. Property rights 2
0
Influence on yields
-2 Go to knightfrank.
To understand the relationship between gross
5 6 7 8 9 10 11 12 com/africahorizons
Prime yields (%) for more from our
yields and real estate FDI received in a country, contributors
Knight Frank Research, fDi Intelligence
we grouped the results of the analysis above Singita Serengeti House, Grumeti Reserves, Tanzania
12 13
m
a
r
k
Will operating models have to change?
PM
I think as we look to the future, conservation-based tourism is going
to expand its baseline investment thesis and reduce its reliance on
tourism alone by considering other integrated revenue streams
Concessions and leases will come up for renewal and there
will be fewer investors and operators available to take on these
renewals post-Covid. Opportunities may exist to consolidate areas
of management and increase the scale and relevance of concession
areas for more co-ordinated protection and larger wildlife
“
It has reinforced our
decision to prioritise
Will Covid-19 impact on the design of hotels and the type
of accommodation and services offered?
RR We don’t anticipate a change in design, but we certainly foresee
e
t within future investment models. We are seeing market evidence management corridors.
conversion opportunities positive growth in more efficient design and upscale properties,
of models that include investment in agriculture, forestry, carbon The fact of the matter is that high-end eco-tourism industry is
and focus less on new as well as serviced apartments, especially when catering to business
r
and aquaculture, as well as supporting livelihood projects directly in crisis and we are going to see the need for significant reinvention builds. We anticipate a travellers. In the leisure segment, we foresee more facilities outdoors
more prudent approach
e
s
linked to tourism conservation programmes. and innovation in how investment in this market sector is and a stronger focus on privacy.
i The top of the market consumer wants to see positive and undertaken and delivered. from financial institutions
l sustainable impact being created and measured, demonstrating
and the investment
i
commitment to community, sustainability and long-term
e
conservation management.
community.
n
c
e
For investors, what do you see as the biggest emerging
opportunities in the sector?
PM Private and institutional capital are vital to help safeguard Africa’s
natural and social capital. Tourism investment into Africa is a long-
term investment model and has the potential to play a key role in
ow has the pandemic affected your expansion plans
H
securing biodiversity. But governments and the private sector Which segments are you focusing on – business travellers
for Africa? What are the greatest hurdles to hotel investments
need better alignment and a broader mindset with regard to how or tourists?
in Africa today?
the biodiversity crisis is addressed and the conditions required RR
It has reinforced our decision to prioritise conversion
to improve the investment climate for tourism. opportunities and focus less on new builds. We anticipate a more RR Our current presence mostly covers city and business hotels.
These conditions can range from public-private partnership prudent approach from financial institutions and the investment Africa remains a strong business destination, given the emerging AM The hotel investment market in Africa has always had its
structures, the granting of longer-term and secure lease community which will translate in the short- and medium-term profile of the region and we still believe in that sector. In the short challenges. While we have seen pockets of innovation in response
concessions, infrastructure investment support, incentives on to a focus on take-overs, and leaner development with a focus term, we expect a rise of leisure and intra-regional demand, which to changing market conditions, the underlying barriers to hotel
duties and imported goods, and joint management agreements. on upscale and more cost-effective operations. will drive domestic tourism in some cities and in particular on investment remain the same today as they were a decade ago.
the leisure side. First, the enforceability of contracts is an issue in many African
markets and, as such, robust due diligence checks that go far
Is the ratification of the Africa free trade agreement beyond those typical of more developed markets are essential.
likely to have a significant impact on intra-continental Second, obtaining finance remains a challenge due to prohibitively
business travel? high interest rates. Inbound investments are typically funded
from abroad, with foreign assets as collateral.
RR The trade pact will ease activities around procurement, logistics Third, ease of access remains a challenge and while there
and sourcing of supplies. Accordingly, we could indeed anticipate a have been efforts to ease visa requirements for both inbound
positive stimulus of regional economic activities that will lead to new and domestic travellers in recent years, the lack of inbound
sources of business demand for the hotel industry. Many industrial connectivity to many African markets is problematic.
sectors and other service industries will benefit from the agreement, There is also a tendency for inbound investors to have a
which will increase free movement of goods and people – the distorted sense of risk because they view Africa as a single unit
fundamentals of travel and tourism. rather than a collection of individual nations. As a result, what
sometimes happens is that perceptions of one nation are reflected
Geographically, which areas of the continent have the on all nations. For example, when considering political risk, an
most potential for growth? investor may believe that risk is high in one market because
there is political unrest in a completely unrelated one.
RR We have established a clear growth strategy which is tailored around
two pillars. The first focuses on four key countries: Morocco, Egypt, What solutions do you think should be in place to
Nigeria and South Africa, which represent the largest growth address these hurdles?
potential. Each country can easily welcome ten additional hotels
within the next three to five years, across all our brands. AM Given the setbacks that the industry as a whole has faced in
Second, we are reinforcing our presence across neighbouring recent years, it is now more critical than ever for these underlying
countries to leverage those synergies and economies of scale. constraints to be addressed for the long-term health of the sector.
Most of our portfolio has been across English-speaking countries Of these, a strong regulatory framework designed to protect
in sub-Saharan Africa and we are now also balancing our presence inbound investment and increased accessibility of development
The new Radisson Red, Rosebank, Johannesburg, the second of the firm’s trendy lifestyle Red brand in Africa with growth across Francophone Africa. finance should be a priority.
14 15
m
a
r
k
Shopping 03.
APPAREL BOUNCES BACK
in these areas. As a result, there has been
increased interest and relocation by retailers
to suburban areas, creating a broader tenant
list
e mix and offering more variety closer to home
t for consumers. This has served to enhance
Apparel stores were one of the most the shopping experience and cement the role
r
distressed retail segments across the of suburban retail in the future of shopping
e
s
continent at the onset of the pandemic. across Africa.
i This resulted in market exits by retailers
05.
l such as Mr Price in Nigeria and the collapse
i
of Deacons in east Africa.
e Africa’s retailers were initially hit hard by the Covid-19 pandemic, However, as a result of remote working
n
but with the help of some innovative thinking they are already bouncing there has been a shift in demand towards
c
back. We look at six of the trends driving the retail recovery casual clothing and workout apparel. Further,
OMNI-CHANNEL PRESENCE
e
Words: Marc Du Toit the ban on international travel redirected – THE END OF THE DEBATE
demand towards Africa’s branded fashion
02.
retailers. As a result, these retailers tripled The online versus bricks-and-mortar retail
their sales turnover compared with pre-Covid debate has raged on for more than a decade
levels in cities such as Nairobi, Kampala and now in sophisticated retail markets. With the
06.
Gaborone. This trend is expected to continue anticipated death of the store, major changes
THE RISE OF THE to be underpinned by middle- and high- in retail strategies and delivery of product to
SUPERMARKET income consumers across the continent in consumers have occurred.
the short to long term. While Africa has not been left behind during
Prior to the pandemic, consumers in the debate, digital retail penetration remains
LANDLORD TENANT
Africa’s major cities generally preferred insignificant with less than 1% of retail sales RELATIONSHIPS –
local convenience stores to the big box being generated online. Lockdowns, therefore, THE NEW NORMAL
01.
supermarkets. Supermarkets, characterised represented an unprecedented opportunity for
by neon-lit aisles, well-packaged products online retail to gain momentum. Landlord and tenant relationships have
and air-conditioned stores, were considered While online retail sales did indeed surge traditionally been transactional in nature.
expensive by consumers, with the result that during the onset of the pandemic, they have However, lockdowns and the forced closure
TOUCH-FREE SHOPPING growth throughout the continent has been now plummeted with the easing of lockdown of businesses due to the pandemic presented
sporadic. However, social distancing measures for
restrictions. This highlights the continued a new dynamic for both parties to compromise
In a Covid-conscious world, demand has and the logistical impact of the pandemic on sale. relevance of physical stores to African and collaborate in order to attract and
increased for contactless payment and touch- informal traders has seen a shift in consumer shoppers. The future ecosystem is therefore retain consumers.
free shopping. While poring through the menu shopping preferences, which has underpinned likely to see omni-channel platforms forming The willingness to make trade-offs, such
at your favourite restaurant or spending an the rebound of the formal retail sector across the foundation for retailers with bricks-and- as the adoption of turnover-based rent
afternoon in the fitting room formed a big the continent. mortar stores. models by some, and greater flexibility on
part of the pre-pandemic shopping ritual, lease terms, are anticipated to underscore
retailers are now investing in reinventing the the new normal in tenancy agreements
experience. Initiatives such as mobile money across the continent, ultimately aligning
04.
payments and trying on clothes virtually, as with international best practice.
well as scan-and-go applications, are becoming
more prominent across Africa. Retailers such
as Woolworths in South Africa have launched
contactless drive-through services, allowing
LOSER TO YOU – THE
C
shoppers to order online and collect without SUBURBAN RETAIL BOOM
leaving the car.
Almost 90% of South Africans have Traditionally, retail in African markets has
been using contactless methods to pay for been centralised in and around business
groceries, according to a Mastercard survey, districts and inner cities. However, with more
while 70% of respondents across the Middle consumers working from home and fewer
East and Africa indicated they had been using daily trips to downtown nodes, consumers
some form of contactless payment since the have engaged more with suburban retail,
onset of the pandemic. leading to significant growth in turnover
15
16
“
We are observing
in some cities
logistics moving
17
Are you
How do you think the Covid-19 pandemic will change the education. In addition, our neighbourhoods will evolve beyond mixed use
into the city centres
m
real estate sector permanently in sub-Saharan Africa? to become home, work, play and education hubs. Overall, I think we will where previously it
a
r
become more imaginative in how we do things. For example, anybody used to be 10 or
15 km away.
being
k
I think what Covid-19 has given us is a trailer of what property markets putting up a flight tracker at the moment will see balloons above Kenya
e and uses of space we will be dealing with in the years to come. It has at 6,000ft, which are now covering the country with WiFi. So, I also
t opened possibilities that were previously closed. You know, if a year ago believe that the opportunities are going to move and will focus around
you had sat in a boardroom and said, “Hey, how about sending everyone smaller towns and our suburbs.
r
home for a few months?”, you would probably have been chased out.
served?
e
s
It would have been an impossibility. You have long argued for the “hotelisation” of real estate, where
i However, I do not want to confuse some of the longer-term trends that space is increasingly thought of in terms of services provided.
l were already with us prior to Covid-19. Trends like co-working, co-living and Are we likely to see this adopted across the continent?
i
e-retailing have been with us for quite a while, both locally and internationally. difference between the two. Especially in places across this continent
e
A few countries could find themselves with debt problems. There is little In the past, the real estate sector was about selling gross rentable area. where macro-economic uncertainty is high, users will be looking for
n
c
space to bail out companies across the African continent. However, I think I think that is fundamentally going to alter. So, using the analogy of a flexibility. If you are in the oil business and you’re an exploration company
e what has become clear is that there is a lot of flexibility in many companies hotel, when I book a room, my brain does not say I’m renting 40 sq m for in Kampala or in Lagos, you’ll be looking for that flexibility.
Property economist Professor François Viruly tells in Africa. In facing uncertainties on a continuous basis, they have had to three nights. That’s not the way I think. I use that space for the services
Tilda Mwai why he thinks the Covid-19 pandemic could learn to adapt. that come with it. I believe that in the future property owners and How is this trend likely to influence financing for development,
speed the adoption of real estate as a service across Africa companies are going to look much more like hotel groups, and branding especially in sub-Saharan Africa?
Of the new opportunities, what excites you most? is going to become more important.
In other words, when I am at a Radisson, I know I’m at a Radisson. I am What we will probably see is financing arrangements that are again
I think the use of the internet could start offering new opportunities in always amazed how little branding happens around property companies. not that different from what we see in the hotel companies, where the
our suburbs. Rather than working from home, I think the point which is Why? Because I suppose if you sell square metres, it’s not that important. actual ownership of the hotel building is split from the management.
coming across is, can I work closer to my home? But when you start selling a service, it starts to matter. This will be based on the building having a strong management
I mean, working from home for many people is fine if you have an office For example, in the residential sector in the US, there are flats now agreement attached to it in the same way that hotels do, so that we split
and you’re comfortable. However, with poor internet and limited space, being built with no kitchen. How often have you been in a hotel and the operation pretty much from the property. It is not enough to say,
the idea of working close to home becomes an important issue. said to yourself, I could live here? So, you start picking this up in the “Well, thank you for renting the space, now plonk your desks down and
In the same way, I believe the retail sector will now be permanently residential sector, where you have cafeterias, places to eat and lounges enjoy it”. There is still going to be a lot of that in Africa, let’s not fool
changed by the internet. in shared areas. ourselves, but what we are discussing now is a service that I think will find
However, the last mile across this continent is very complex. Some However, in the office sector, it is a bit different. Once you start its way very rapidly to the property markets, as we have seen elsewhere.
people have addresses, some people do not have addresses. How do offering services, those services are, first of all, not just limited to the In terms of supply and demand indicators, what we see now is the
you get goods to the final point? building itself. They also encapsulate the urban environment around property market starting to function in a different way in the type of
We have seen interesting examples in places like Kibera in Nairobi, the building. So, the users will also be keen to interact with the outside leases that are wanted. We are likely to see a form of Airbnb for the
where the goods go to the entrance of the township and then guys on environment beyond the office block. commercial property market. So, the way we think about the property
motorbikes take the goods to the shopper because they know who’s who market and the way it functions starts altering. Of course, when I talk
and where they live, in instances where an official courier would almost What does this mean for investors and developers? of Africa, it is a big place with big differences in the way legislation works.
certainly get completely lost. So, we will find our ways. In South Africa alone, we have 2.5 million sq m of office space floating
We are observing in some cities logistics moving into the city centres What becomes important is facilities management. In the past people around the market now. So, I can assure you that we’re going to find
where previously they used to be 10 or 15km away. This will usher in have appreciated the importance of the work environment and of being innovative ways to work with that.
last-mile opportunities for logistics space closer to where people live able to organise that environment the way that they would like to see
and support the delivery of all these goods. it. It takes you about two minutes if you walk into a hotel to come to a In conclusion, what is the main opportunity arising from this
I think there is also opportunity for shopping centres to diversify beyond conclusion whether it is functioning properly or not and I think this is emerging trend that you think investors should leverage?
shops. This will go beyond the buying of goods to the buying of services like going to be the same for offices. Taking this to the extreme, I would argue
that the money is not necessarily going to be made on the rental; it will The big positive is that we have a young, enthusiastic population, while
be made on the service that is being provided. the rest of the world is talking about a growing elderly population. From
As I mentioned earlier, branding will also be core. So, if I am a a consumer perspective that offers opportunities. I think there is also an
property investor, I know that if I go to a similar building somewhere opportunity to bring technologies very quickly into a market and to have
“
else in the world, I am going to get the same service. That is probably our property markets leapfrog over one or two of the steps that markets
one of the important changes to come. Users of space, whether in in other parts of the world have had to go through.
Johannesburg, Nairobi, Luanda or Lagos, will get the same service.
I believe that property The other thing is that there is this mismatch in property. We build for
40 years ahead of us and we take a long-term perspective, we do discount
owners and companies are cash flows on ten years and beyond, yet we have users who really cannot
going to look much more see beyond the next three or four years.
Professor François Viruly is an associate professor at the
University of Cape Town, a property economist and Executive
like hotel groups than the I think it is interesting how that mismatch happens, and I think that
Director of the African Real Estate Society.
property companies we is where the provision of space on a short-term basis starts bridging the
have known in the past,
and branding is going to
become important.
18 19
m
a
r
k
e
Our view Innovation
How new ways of thinking and a step
t change in connectivity are fuelling growth
With service-led real estate rising steadily up the agenda,
r Knight Frank experts from across the continent share their thoughts
e
on the trend – and what it means for their real estate markets
s
i
l
i
e
n
c
e studies; more like an intensive live/work set up serviced office centres within their
concept fully integrated into residential buildings to accommodate tenants looking
apartments. I anticipate that this concept for lease flexibility.
will in future be backed by legislation and
regulations by physical planning departments
at various governmental levels. Across the
commercial real estate sector, occupiers are
expected to align towards quality service,
driven by excellent facilities management
services as opposed to merely focusing on
Ian Lawrence square metre purchases or leases. Hence,
Consultant, Knight Frank EMC in the near term, we expect to see property
owners, facilities management companies
There is no doubt the Covid-19 pandemic and services management experts Sharon Kamayangi
has accelerated trends in Africa and globally. collaborating for better service delivery. Occupier Services Representative,
However, Africa’s 54 countries are all at Uganda
different stages of development and each
of their real estate sectors will react to the Real estate as a service is expected to
pandemic in their own way. What remains to continue to form an essential part of the
be seen is how advancements in technology property sector long after the pandemic.
will allow those countries to “leapfrog” In Uganda, we anticipate this will usher
existing technological cycles and how many in new ways of doing business through
yet unknown technological innovations will be increased technology adoption and flexible
born out of Africa. working. These factors are set to create THE HEAT IS ON
new opportunities in the real estate sector. Changing climate, changing cities
Winnie Gachagua Guidance on space optimisation, co-working
THE GREEN MACHINE
Corporate Real Estate Services and office restructuring for occupiers have
How ESG became a business imperative
Manager, Kenya become key areas of focus, reflecting the
increased opportunities for real estate FOOD FOR THOUGHT
While we were already experiencing low firms. Ultimately, it is the adaptability of Positive impacts and healthy profits
absorption, the current pandemic escalated real estate firms to this “new normal” that
GET CONNECTED
the situation and forced landlords to become will determine who will thrive in the current
Connectivity makes the big leap forward
more innovative and competitive in a bid to and future economy.
attract tenants and improve occupancies. A CREATIVE THINKING
Charles Onyenze few have seized the initiative by improving Africa’s innovation - and talent - hotspots
Partner, Knight Frank Nigeria the quality of otherwise shell and core
spaces to Grade A standard, or offering to
Across Nigeria, we are likely to see a fit out space to client specifications then
redesigning of residential floor plates to amortising the cost in rent. Most notably
reflect the need for private offices and – and unique to this market – a few have20 21
The heat is on
is anticipated to be the most urgent post- human-built elements such as the volume spaces in developments remains the most
Covid challenge. While there is no simple and colouring of buildings, and variations cost-effective strategy for maintaining high
solution to climate change itself, it is the in their heights. Although creating cooler levels of environmental quality in African
built environment that poses the greatest cities does not necessarily mean building cities. Cities such as Durban and Dar es Salaam
challenge. A report into the efficiency of green at lower densities, adapting the built are already leading in these initiatives across
infrastructure treatments by researchers from environment to absorb increasing heat the continent.
Climate change is set to have a profound impact on Africa’s rapidly expanding cities over Portland University indicates that urban heat intensity through green infrastructure is While the trends mentioned above may
the coming decades. With the help of Knight Frank’s specialist Geospatial team, we explore is impacted by six main factors. the first step towards mitigating climate present challenges, they also herald an
what the future holds for urban dwellers, businesses, entrepreneurs and investors These can be grouped into two categories, change challenges in African cities. exciting era of innovation and opportunity
Words: Tilda Mwai natural and human-built. The first category Already, green urban development has for developers and real estate investors
Geospatial analysis: Cameron McDonald includes such natural elements as ground emerged as a priority for most of the cities prepared to adapt and work closely with
level vegetation and the height and volume of across the continent. The World Bank notes environmentally-focused entrepreneurs,
tree canopies. The second category includes that incorporation of substantial green open architects, designers and urban planners.
T
he allure of cities is strong. For extreme weather changes are predicted in In west Africa, the changes are mostly
millennia people have gathered central and southern Africa, including in the occurring in the rural areas of Togo, Nigeria
WEATHER FORECAST
in them to trade, learn and have capital cities of Lilongwe, Malawi and Lusaka, and Cameroon and central parts of Gambia,
fun, resulting in productivity, Zambia. These areas are anticipated to shift Senegal, Burkina Faso and Chad, while in Köppen-Geiger climate
change predictions
innovation and, ultimately, economic growth. from a warm humid sub-tropical climate to Mali, changes in climate are occurring near
Twenty-first century Africa epitomises this a savannah climate. Further, in Ethiopia and the capital city of Bamako. These areas are
trend: the continent is expected to record the Kenya, in the suburbs of Addis Ababa and predicted to change from equatorial savannah
highest rates of urbanisation anywhere in the Nairobi, a shift from a humid sub-tropical climates to semi-arid. In other areas, such
world. UN-Habitat estimates that 700 million highland warm climate to a tropical equatorial as Burkina Faso, longer dry seasons are
i additional people will move to the cities of savannah climate is expected. expected, leading to increased drought and
n
Africa over the next 35 years. That means an Second, extreme weather changes in rural desertification resulting in increased rural
n
entire New York City will need to be built – areas are anticipated to impact on agriculture to urban migration.
o
v
every six months. And, with a rising youthful as a main source of livelihood, ultimately Like many crises before, Covid-19 is likely
a demographic, half of these new city dwellers driving still more people to the cities. to inspire an evolution. Fixing our cities
t will be under 35.
i
But with more and more people vying for
o
space in them, Africa’s cities are getting
n CLIMATE CHANGE RISKS TO REAL ESTATE
warmer. The Köppen-Geiger climate change
predictions for 2050 illustrated in the map
on the opposite page shows how the impact
of these changes will be felt in African cities, Lower liquidity of Subdued
assets that have residential or
in two distinct ways. not incorporated commercial
First, a combination of the urban heat island climate mitigation prices2
effect combined with global warming will have
a direct impact on the environment within the Loss of
Reduced subsidies and
cities themselves. economic increased real
activities TRANSITIONAL estate property
Scientists define the urban heat island
RISKS taxes
effect as the resultant impact of ongoing
human activities such as construction on the
urban environment. As a result, air, surface and
soil temperatures in cities are almost always Higher
Functional PHYSICAL capital
higher than in rural areas. For example, over obsolescence RISKS expenditure
the past two decades, temperatures in London in buildings in adaptation Biggest African climate change shifts forecast by 2050
measures
have at times been up to 5°C warmer than in
nearby rural areas. Nairobi has recorded an Warm temperate to equatorial Warm temperate to arid
average air temperature increase from 18.8°C Increased High
Equatorial to arid Other change types
insurance operational
in the 1950s to 19.5°C in 2000s.
premiums costs
While urban heat is yet to reach alarming
Countries where agriculture >30% of total GDP in 2020
levels in Africa, increasing urbanisation
rates look set to have a significant impact
on the climate. Our map indicates that Source: Urban Land Institute22 23
The green
The upshot of this rapid shift in perspective There are now more than 120,000 green-rated availability of green financing from financial
“
around ESG factors is that property investors real estate assets in clusters spread around institutions such as Housing Finance in Kenya
now have an additional set of criteria to consider the world. is providing a green mortgage credit line of
when buying, selling or redeveloping assets. Across Africa, the built environment up to US$20 million.
machine
The move towards Appraisals and valuations will increasingly be landscape is set to change, adapting to local In addition, as they mainly rank as Grade A
ESG investing is not looking across factors such as the performance needs for real estate with a greater emphasis developments, the majority of the sustainable
of the physical asset itself, the locational risk on sustainability underpinned by increasing commercial offices developments across the
just occurring at
of where the asset is located and, increasingly, urbanisation and rising populations. African continent have a greater tenant retention
global level but an understanding and measure of the tenant cities and urban populations are set to grow at capacity resulting in income resilience and
in Africa as well. counterparty risk. Collectively, this risk an unprecedented rate of 3.5% per annum. By increased investor interest. As indicated
One theme will dominate headlines, markets and investment decisions in 2021. assessment is referred to as Climate Value-at- 2050, Africa’s cities will be home to 1.3 billion in our Active Capital report, it is important
It won’t be pandemics, economics or market cycles; it will be ESG. Two of Risk, or CVaR. more people than today, resulting in increased that buildings reflect the ethos of the brands
Knight Frank’s sustainability experts explain why these three letters matter The cost of not understanding this dynamic demand for buildings – with 80% of those that that operate within them. Therefore, as
so much to occupiers and landlords when it comes to African real estate and not applying it is likely to be significant, even will exist in 2050 yet to be built. occupiers increase their focus on sustainability,
Anthony Duggan, Head of Global Capital Markets Research if the investor is not governed directly by the There are currently approximately 700 occupation of green buildings becomes a very
David Goatman, Head of Energy, Sustainability & Natural Resources EMEA
reporting and regulatory standards. What we certified green buildings in hotspots across visible way to demonstrate their commitment
are seeing in the market now is that those assets the continent with the most dominant rating to the cause.
with the ESG characteristics that investors are tools being Green Star (Green Building Council Although the certification of green buildings
E
increasingly looking for are experiencing a short of South Africa), the LEED rating system (US can be challenging, especially in markets without
SG, or to give it its full description, GREEN BUILDINGS IN AFRICA term “green value premium”. However, over the Green Building Council) and EDGE (IFC). While set guidelines, sustainable buildings will go a
environmental, social and longer term our house view is that an increasing South Africa continues to account for more long way towards influencing resilient returns
governance factors, has seen awareness of the transition costs of bringing than three-quarters of these buildings, rapid by ensuring tenant retention and reducing
a dramatic acceleration during assets up to “institutional” ESG standards plus green growth has been witnessed across the occupancy costs in the medium to long term.
i 2020. No longer just “the right thing to the other measures impacting value calculations continent, underpinned by a range of factors.
n
do”, understanding and delivering on these will mean that buildings with poorer climate These include the changing legislative tide
n MORO C C O
dynamics is now a business imperative. performance will increasingly see value eroded. across countries such as Rwanda, where the
o
v
Why will this impact real estate? Well, if the This discount will continue to accelerate Rwanda Green Building Minimum Compliance THE ESG PREMIUM
a world is going to reach the targets set as part of towards what is likely to be a cliff-edge “brown standard is mandatory for all upcoming
EGYPT Landlords
t the reaction to the globally recognised “climate value collapse” on the not-too-distant horizon for commercial developments. In Ghana, the launch
i
• Sustained demand as a result of
emergency” then real estate needs to play a those assets that cannot match the standards of the Eco-Communities and Cities National
o occupiers’ preference for buildings
part – and it must be a significant part, as 36% required. This cliff-edge is not dissimilar to that Framework has seen green buildings grow
n that reflect their ethos and values
of all carbon emissions originate from the built being experienced by the “stranded assets” of in popularity and the development of iconic
• Higher rent premium and value
environment. Governments, regulators and all oil and gas companies. buildings such as the Atlantic Tower in Accra.
preservation for green-certified buildings
of those looking to have an impact will have to SENEG AL ESG is the biggest threat to real estate In Morocco, sustainable development is now a
work hard to bring this figure down. performance since the global financial crisis, but national priority, following the adoption of the Financial institutions
So, expect regulation and reporting to NIGERIA investors will not be rescued by cyclical market National Sustainable Development Strategy. • Regulatory compliance
continue to intensify. And this will increasingly GHANA dynamics. Understanding the risks and, Increased demand for green buildings can • Tax relief or exemptions on qualifying
mean investors putting pressure on asset of course, the significant opportunities this also be attributed to the availability of a broad assets such as green bonds
managers to fall into line and to deliver the brings will be the hot topic globally in 2021. range of financing options for investors and
ESG performance they need to show. KENYA developers. As of October 2019, the Stockholm Portfolio
At the same time, the end user – the Sustainable Finance Centre notes that green • Reduced business risk
property occupier – is also working on their The E in ESG bonds in excess of US$2 billion had been • Access to “green” finance for energy and
own impact agenda and will be demanding issued in Africa. Kenya’s Acorn Holdings’ resource efficiency projects
ARTU RO PAVANI, TILDA MW AI
that the real estate they commit to has the green bond, focused on purpose-built student • Product diversification
required characteristics to be part of their Globally, sustainability has perhaps been the accommodation, was the most notable for the • Brand and reputation growth above peers
own decarbonisation solution. strongest driving force for ESG in real estate. real estate sector so far. Further, increased
The move towards ESG investing is
not just occurring at a global level but in
SOUTH AFRICA
Africa as well. For decades, ESG principles
NAMIBIA
641
across the continent have been reflected
through investment by development finance
SENEGAL NIGERIA NAMIBIA MOROCCO K E N YA GHANA E GY P T
institutions. With rising institutional capital
flows into real estate across the continent,
adoption of ESG standards by investors such as Sources: World Green Building Council, S OUTH
Actis is serving as a benchmark for investing. Green Building Council of South Africa AFRICA 21 20 6 9 21 10 22You can also read
